Exchange: LSE | Sector: Healthcare | Industry: Medical Equipment Services
Q2 2025
Published: Jan 30, 2025
Earnings Highlights
Revenue of $55.26B down 3.8% year-over-year
EPS of $1.65 increased by 10% from previous year
Gross margin of 3.5%
Net income of 400.00M
"" -
Cardinal Health Inc (0HTG.L) QQ2 2025 Results — Modest Revenue Stability Amid Margin Pressures and Balance Sheet Considerations
Executive Summary
Cardinal Health reported QQ2 2025 revenue of $55.264 billion, a year-over-year drop of 3.8%, with a QoQ uptick of 5.7%. The quarter delivered a modest improvement in profitability metrics relative to topline decline: gross profit was $1.941 billion for a gross margin of 3.51%, while operating income reached $549 million (operating margin ~1.0%) and net income was $400 million (net margin ~0.72%), translating to diluted earnings per share of $1.65. Relative to the prior year, EBITDA stood at $738 million (margin ~1.34%), underscoring continued margin pressure in a low-single-digit margin model typical of large healthcare distributors and medical-supply players.
Despite improving sequential revenue, cash flow remained under pressure. Operating cash flow was negative at $(400) million for the quarter, driven by working capital dynamics (change in working capital of $(1.039) billion; accounts receivable and inventory outflows weighed on cash), while free cash flow was $(499) million. The company ended the period with $3.81 billion in cash and equivalents, supported by net financing activity of $2.331 billion and a net debt position of $(3.80) billion. On the balance sheet, total assets were $47.0 billion against total liabilities of $49.9 billion, yielding negative equity of approximately $(2.99) billion. Leverage remains evident with total debt of $7.61 billion and debt-to-capitalization metrics around 1.65x, though interest coverage remained robust at ~16x, mitigating near-term refinancing risk.
From a market standpoint, Cardinal Health operates in a highly competitive, low-margin distribution and medical products environment. Relative to peers, the margin profile remains a focal challenge, while liquidity and scale provide firepower for potential strategic initiatives. The absence of formal earnings call transcripts in the provided data precludes direct management quotes, but the financials imply a continued emphasis on cost containment, working capital optimization, and selective acquisition-driven growth. Key near-term questions for investors include whether operating cash flow can normalize, if margin improvement can outpace cost inflation, and how the company allocates capital to delever and fund strategic initiatives.
Cash flow and balance sheet:
- Net cash provided by operating activities: $(400)M; Free cash flow: $(499)M
- Capex: $(99)M; Acquisitions net: $(1,076)M; Purchases of investments: $(3)M; Sales/Maturities of investments: $2020M
- Net change in cash: $943M; Cash at end of period: $3.81B; Cash at beginning: $2.867B
- Total assets: $47.00B; Total liabilities: $49.92B; Shareholders’ equity: $(2.99)B (negative)
- Total debt: $7.61B; Net debt: $(3.80)B
- Current ratio: 1.02; Quick ratio: 0.54; Cash ratio: 0.11
- Key liquidity and leverage indicators show a stressed equity base but ample cash resources and coverage (Interest Coverage ~16x).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
55.26B
-3.79%
5.71%
Gross Profit
1.94B
5.15%
2.05%
Operating Income
549.00M
8.71%
-3.35%
Net Income
400.00M
8.70%
-3.85%
EPS
1.65
10.00%
-3.51%
Key Financial Ratios
currentRatio
1.02
grossProfitMargin
3.39%
operatingProfitMargin
1.02%
netProfitMargin
0.72%
returnOnAssets
0.85%
returnOnEquity
-13.4%
debtEquityRatio
-2.54
operatingCashFlowPerShare
$-1.65
freeCashFlowPerShare
$-2.06
dividendPayoutRatio
30.5%
priceToBookRatio
-9.58
priceEarningsRatio
17.92
Net Income vs. Revenue
Expense Breakdown
Management Commentary
No earnings call transcript data were provided in the dataset. As a result, management quotes and verbatim commentary are not available for thematic synthesis. The forward-looking analysis below relies on the disclosed financials and standard sector dynamics.
—
—
Forward Guidance
No explicit forward guidance was published in the provided data. Given QQ2 2025 results, management is likely prioritizing capital allocation discipline, working capital optimization, and selective investment to drive medium-term margin improvement. The current trajectory suggests a focus on (1) stabilizing gross margins via mix and procurement dynamics, (2) leveraging scale in the Pharmaceutical and Medical segments, and (3) de-leveraging through a combination of operating cash flow normalization and selective debt management. Investors should monitor:
- Trend in operating cash flow and free cash flow recovery as working capital normalizes
- Progress on margin expansion or cost-out programs to lift gross and operating margins
- Debt issuance/refinancing risk and covenant compliance as leverage evolves
- The pace and impact of acquisitions on earnings quality and integration milestones
- Working capital dynamics (DSO/DIO/DPO) and inventory management
- Cash return to shareholders versus reinvestment in growth initiatives
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
0HTG.L Focus
3.51%
1.02%
-13.40%
17.92%
0HWH.L
60.70%
50.10%
19.70%
11.32%
0R09.L
76.70%
-7.52%
1.62%
-71.28%
0QYK.L
68.70%
15.60%
-1.02%
23.89%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Overall, Cardinal Health QQ2 2025 presents a cautious investment stance. The company exhibits a stable revenue base in a low-margin distribution model but faces margin compression and negative near-term cash flow, leading to a fragile net equity position despite ample cash on hand. The stock could offer modest upside if management can deliver margin expansion and normalization of operating cash flow, aided by disciplined capital allocation and successful integration of acquisitions. In the near term, the stock appears to trade at a modest valuation relative to peers but with material downside risk if cash generateability does not improve. Key catalysts would include a sustained improvement in working capital efficiency, a clear path to deleveraging, and evidence of margin resilience in the Medical segment.
Key Investment Factors
Growth Potential
Moderate growth potential from scale in Pharmaceutical distribution and Medical segments, with upside from cost efficiencies, improved price/mix, and potential international expansion. Near-term growth is tempered by volatile healthcare purchasing patterns and competitive pricing pressure.
Profitability Risk
Key risks include sustained margin compression in a low-margin distribution model, reliance on working capital efficiency, integration risk from acquisitions, regulatory and pricing pressures, and the challenge of maintaining positive free cash flow in a capital-intensive portfolio. The negative equity position also warrants close scrutiny of capital structure and refinancing risk.
Financial Position
Liquidity is strong with cash of $3.81B, but negative equity and elevated debt levels (total debt $7.61B) create a sensitive balance sheet. Interest coverage is robust (~16x), but negative free cash flow and ongoing acquisition activity imply ongoing need for prudent balance sheet management and potential optimization of capital allocation.
SWOT Analysis
Strengths
Diversified healthcare services and products platform with Pharmaceutical and Medical segments.
Scale and breadth of customer base across hospitals, healthcare systems, pharmacies, and labs.
Robust liquidity cushion with ~$3.81B in cash and equivalents.
Strong interest coverage (~16x) provides borrowing flexibility for strategic moves.
Weaknesses
Low gross margin (~3.5%) and very modest operating margin (~1%), highlighting margin sensitivity.
Negative book equity (shareholders’ equity approximately $(2.99)B) raises balance sheet concerns.
Negative free cash flow in QQ2 2025, signaling working capital and capital expenditure pressures.
Heavy reliance on acquisitions to drive growth, which introduces integration risk and potential earnings volatility.
Opportunities
Margin improvement through procurement optimization, cost-out initiatives, and favorable mix shift toward higher-margin Medical products.
Potential accretive acquisitions with clearer integration plans and synergies.
Continued capital allocation toward deleveraging while maintaining liquidity for strategic investments.
Opportunities to enhance working capital efficiency to restore positive operating cash flow.
Threats
Intense competitive landscape from peers (e.g., large-scale distributors) and evolving pricing pressure.
Regulatory changes and payer reimbursement dynamics affecting margins.
Macro health expenditure cycles and hospital purchasing patterns impacting revenue stability.
Liquidity and capital structure risk if acquisitions accelerate leverage without commensurate cash flow generation.